Flight Centre to go private
Flight Centre, Australia’s largest travel agency chain has announced that its founding shareholders in partnership with private equity firm Pacific Equity Partners want to take Company back into private hands and retain control of the Company.
Flight Centre shares leapt more than 23% per cent yesterday, up $3.20 to $16.85, with the deal offering minority shareholders $17.20 a share including a 20c per dividend to sell their shares, with at this price the company valued $1.6 billion.
Concern has been expressed though that the buyout offer took advantage of the industry’s recent turbulent trading conditions affecting Flight Centre shares and the offer an attempt to buy the Company back cheaply.
The offer of $17.20 and a 20c dividend represents a large premium to the pre bid share price, with analysts sating that a price of $20 closer to the Company’s real value.
PEP is recognised for taking companies into private hands, leveraging assets with high levels of debt, then relisting the companies in three to five years at a significant premium, with once it becomes private, the currently debt-free Flight Centre expected to be loaded with around $1 billion worth of debt, allow the five founding shareholders, who between them own 58% of Flight Centre, to remain owning around 60% of the equity in the new private company while having sold 50% of they current stake in the buyout for $435 million.
Founding shareholders will receive only $14 per share in the buyout instead of the $17.20 on offer to minority shareholders and this I intended to keep minority shareholders on side, with the buyout anticipated to take place in early 2007.
Flight Centre’s Managing Director and Co-founder, Graham Turner, also known as Skroo, who will retain his current position, believes that a private structure would be more suitable for the company given the current industry pressures, adding “Given the uncertain and challenging outlook for the travel industry, we believe the public market is not the best structure to support the business in this period of its life cycle and the founders have chosen PEP to support us in this process and to help us build value in the business over the longer term.”
Skroo also said that the travel agent was beginning to feel the pinch from negative market sentiment along with pressure from the internet adding, “We are at a stage where we need to focus on the longer term and a private structure will certainly help us we believe.”
Skroo also warned suppliers they could be squeezed or potentially dropped in a bid to cut costs and increase margins, warning that with the Company privately-owned, strong action would be taken against suppliers, with online sales substantially increasing.
He confirmed that online retailers had taken the “cream of the business” away, and trying to get 10% growth had become that much harder, adding that as result Flight Centre may need to take some strong action against suppliers to make sure that margins are protected in the long term.
Report by The Mole
John Alwyn-Jones
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